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Islamic Mutual Funds

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Islamic mutual funds are growing phenomena in the business world among Muslims due to the need to connect spirituality with the economic aspect of life. Although very few inferences can be drawn on the general performance of Islamic mutual funds, there is a general observation that they have concretely integrated moral ethics which guide the way business is conducted. This is an observation that cannot be made from most organizations in an environment where profits guide all business undertakings with no regard whatsoever of moral ethics.

Introduction

In the contemporary business world moral ethics has been given a backseat while profits have been the driving force of most organizations. There is stiff competition among businesses for the consumer’s pocket and the only determining factor of the winner is how profits have been made. Issues such as proper human resource management, attaining competitive advantage are constantly being spoken of, but ethical issues have become a topic that drives a cold chill on the executives of many companies. However, research has established that companies that operate with regard to a given moral code of ethics actually perform better than companies that do not.  (Henn, 2009) Among the benefits of adhering to good moral ethics in a business include: good financial performance and accountability, improved reputation and image, increased revenues and consumer base, improved productivity and better retaining capacity of employees. These are some of the aspects that most companies strive to attain on a day to day basis.

Research Background

Amana Mutual Funds Trust is one such financial institution that can be described as Islamic mutual funds because all its businesses are strictly based on Islamic principles. From the information gathered from Amana Mutual Trust Fund website, the organization just like most other mainstream mutual funds, pools funds from clients and the invests the funds in various areas. However, the organization desists from inventing in the stocks of companies deemed as dealing in illegal businesses and this has a very significant ethical implication which is a rare observation in most companies. In instances where Amana Funds Trust invests money in companies that make huge profits, it makes sure that the money obtained from such a company is invested in charity as a way of cleansing the money.

Problem Statement

In the contemporary business world, organizations have embedded within their policies some of the most elaborate moral ethical codes that are supposed to act as guidelines. However, more often than not businesses are faced with scandals that are related to moral issues such as misappropriation of funds. The problem is that the organizations lack the motivating factor to adhere to the stipulated moral codes.

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Literature Review

One major drawback towards the attainment of proper business ethics within an organization and steer the organization towards business success is the aspect of training. Training employees is one of the most difficult undertakings for companies first because it is usually considered very expensive and because the benefits can only be observed on a long term basis.  However, when an organization is operated on the basis of the Islamic principles of conducting business the aspect of conducting intensive training on ethical issues is much easier. Most business unethical activities are always related to the financial perspective and geared towards making huge profits within a short period of time. As outlined by Beauchamp (2001), financial organizations are the ones that are mostly plagued by ethical issues. According to (Elfakhani, 2005), Islamic principles act as strong guidelines towards the attainment of business ethics. Furthermore, he explains that it is imperative that businesses always remember their corporate social responsibility and Islamic principles make it imperative of Muslims. In a study conducted by Siddiqi (2008), it was established that although it is difficult to make a clear comparison between the performance of Islamic mutual funds and other mutual funds, Islamic mutual funds still performed better than government mutual funds. Siddiqi also observed that the Islamic mutual funds have one major disadvantage in that the managers are not allowed to invest in most mainstream companies because of the huge profits made and the fact that some companies are involved in businesses considered to be illegal in Islam. However, the major advantage is that the Islamic mutual funds are guided by strong moral ethics and their performance is always characterized by transparency and selflessness. Even companies that have moral ethics in their policies still find it hard to adhere to them.  (Beauchamp, 2001)

Discussion

Although, there is no clear documentation regarding the comparison of Islamic mutual funds and other mainstream mutual funds, there is a point of reference that can be used to make calculated inferences. There is significant correlation between the level of performance and the adherence to moral ethics by companies. The general observation is that companies that adhere to moral ethics always perform better in many aspects including employee retention, increases profits and consumer loyalty. Even companies that have moral ethics still find it hard to integrate the ethics within all their processes.

Conclusion

From the findings of this investigation there is an observation that moral ethics are very important for any business whether a financial institution or a business in any other sector. In addition, just the mere knowledge or stipulation of ethical codes is not strong enough to ensure that they are adhered to. The essence of Islamic mutual funds like Amana Trust Funds is that they provide a basis and reason for financial organizations and their managers to adhere to Islamic ethical codes.

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